This category of finance is generally used where the vendor's expectation or knowledge of the value of the business extending the credit is higher than that of the borrower's bankers, and usually at a higher interest rate than would be offered elsewhere.
[3] Vendor finance bridges the valuation gap due to the time value of money.
Since there is no contingency, vendor finance is more risky for the buyer than an earn-out.
Vendor finance can also be used when the buyer does not have the funds to purchase the entire business.
In this case the vendor creates a loan with an interest charge to help the buyer complete the purchase and help the seller complete the sale, usually on better terms for the seller.